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Katherine [00:00:00]
It's time to do a Brexit breakdown. Joining me is Richard Sega, Global CIO at Conning. Now, Rich, I want to talk about all things Brexit but to start I just want a kind of a breakdown of how this could impact global markets.

Richard Sega [00:00:14]
Well, you've probably heard recently that the IMF again downgraded their outlook for global growth. One of the big components that of course is the leader is China. But the next is UK and Europe. Brexit the total amount of fog and uncertainty around it drags down sentiment and certainly prevents people from being very constructive about the outlook. And that I think that contributes to our outlook for growth in the region both the U.K. and the continent for about one and a half percent this year, compared to say two and a half or north of that for the US. So a big spread compared to a couple of years ago when we were all kind of moving along in sync. So the Brexit uncertainty definitely a drag on growth.

Katherine [00:00:57]
What about what should a US investor know about Brexit at this point?

Richard Sega [00:01:03]
Well, it's hard to know what to know about Brexit because I don't think anyone really knows how it's going to work out but the salient point I think for investing is to think about the longer term here and that is to say in my view the UK even and I don't think we'll have a hard crash out. But even if we did from Britain's point of view, they are net importers and they can really structure deals to import from almost anywhere. So I think their economy is probably less affected than it would be say for Europe and Germany, who really needs the UK as an export market. So if you as an investor, I lean toward UK and away from the continent right now in the face of things right now.

Katherine [00:01:44]
Let's talk about Europe in general what is one thing that I should know as a U.S. investor about Europe and their markets?

Richard Sega [00:01:52]
Well I think the problems that have risen to the fore a few months ago with Italy's budget and trying to reconcile the demands on the ECB and the pressure on the euro those are maybe ameliorated for now but they're not over. They'll continue what has been going on in fits and starts for some years and I think it still will be that way. So it's hard to see that the removal of monetary accommodation that they've planned for and started at the end of the year. I don't know how long that persists. The pressures may just as folks are talking about in the US maybe the Fed will have to start easing again maybe the ECB will have to do that too. So I think that there's it's a little grimmer than than it could be if there weren't, if you didn't have those budgetary problems in the southern tier.

Katherine [00:02:43]
What about the China trade war that we're seeing in the US? How is that going to impact U.S. markets?

Richard Sega [00:02:50]
I think that's one of the two pivotal risks that we face right now. The other course is a potential policy error at the Federal Reserve. I think that's a lower probability than a potential problem coming out of the trade negotiations. Our view though is that this will result in a favorable way and that is to say we may not have a total solution quickly but we already have had a number of concessions from China. We're still working toward a final agreement of some kind. And when we get that I think that's a huge relief rally for markets particularly emerging markets but for risk markets in general and I do think we'll get some sort of agreement at least an agreement to solve some problems now and work into continue to work towards solving the others.

Katherine [00:03:37]
But the US just said that they want to arrest the CFO of Huawei. Will that throw a wrench in these trade tensions at all?

Richard Sega [00:03:44]
It certainly could. That's one of the big things we've been watching on that China suggested that if that were to happen that they would interrupt or stop the current progress on the talks. Those and then subsequent to that we've said yes that's what we're going to do. It sounds to me like it's at least it's a possibility that these are negotiating tactics and neither side will actually follow through with the ultimatum that they put out there but are using it to put pressure on the other to get the final parts of the next stage of the agreements in place. But it certainly is a threat and if that does come to pass and they do stop the talks that would be a big downer for our outlook for growth because a good part of it depends on some resolution to the current trade disagreements.

Katherine [00:04:30]
And my final question for you is we've seen Caterpillar, we've seen Apple all come out and say that their growth is slowing because of China. And I'm wondering at this point, are companies just joining the China bandwagon as an excuse?

Richard Sega [00:04:46]
I've heard that that some companies might use the story to cover other problems and sort of get a kitchen sink quarter into there so they can sweep it under this big announcement. I think China's one thing but just think of all other potential drags we have on the economy recently. I think the Fed's rhetoric was more threatening than their actual actions but it took a while for them to back off and calm markets from that fear. We had to shut down that's just over but not really over because in three more weeks we could have another round of some kind. There are a lot of things dragging the markets down. So I'm not sure that China alone is the source of all the earnings. You know Apple had been signaling weak iPhone sales for a long time, shouldn't have been a surprise to investors. Cat same thing. Given their dependence on demand from developing countries. So I don't think that's a broader indication of industrials generally I think earnings could still be pretty good this year.

Katherine [00:05:44]
Thank you for joining me,Richard.

Are you paying attention to the global markets?

Rich Sega, global chief investment officer at Conning--a global asset management firm--sat down with TheStreet to break down what American investors need to know about Europe right now. 

"Well I think the problems that have risen to the fore a few months ago with Italy's budget and trying to reconcile the demands on the European Central Bank (ECB) and the pressure on the Euro those are maybe ameliorated for now but they're not over," he said. "They'll continue what has been going on in fits and starts for some years and I think it still will be that way. So it's hard to see that the removal of monetary accommodation that they've planned for and started at the end of the year. I don't know how long that persists. The pressures may just as folks are talking about in the U.S. maybe the Fed will have to start easing again maybe the ECB will have to do that too. So I think that there's it's a little grimmer than than it could be if there weren't, if you didn't have those budgetary problems in the southern tier."

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